KEY QUESTION Assume the following cost data are for a purely competitive producer: Total Average Average Average
Question:
KEY QUESTION Assume the following cost data are for a purely competitive producer:
Total Average Average Average Marginal Product Fixed Cost Variable Cost Total Cost Cost 0 1 $60.00 $45.00 $105.00 $45 2 30.00 42.50 72.50 40 3 20.00 40.00 60.00 35 4 15.00 37.50 52.50 30 5 12.00 37.00 49.00 35 6 10.00 37.50 47.50 40 7 8.57 38.57 47.14 45 8 7.50 40.63 48.13 55 9 6.67 43.33 50.00 65 10 6.00 46.50 52.50 75
a. At a product price of $56, will this firm produce in the short run? Why or why not? If it is preferable to produce, what will be the profit-maximizing or loss-minimizing output? Explain. What economic profit or loss will the firm realize per unit of output?
b. Answer the relevant questions of 4a assuming product price is $41.
c. Answer the relevant questions of 4a assuming product price is $32.
d. In the table below, complete the short-run supply schedule for the firm (columns 1 and 2) and indicate the profit or loss incurred at each output (column 3).
e. Explain: “That segment of a competitive firm’s marginal-
cost curve that lies above its average-variable-cost curve constitutes the short-run supply curve for the firm.” Illustrate graphically.
f. Now assume that there are 1500 identical firms in this competitive industry; that is, there are 1500 firms, each of which has the cost data shown in the table. Complete the industry supply schedule (column 4).
g. Suppose the market demand data for the product are as follows:
Total Quantity Price Demanded $26 17,000 32 15,000 38 13,500 41 12,000 46 10,500 56 9500 66 8000 What will be the equilibrium price? What will be the equilibrium output for the industry? For each firm? What will profit or loss be per unit? Per firm? Will this industry expand or contract in the long run?
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